Q4 2023 Haverty Furniture Co Inc Earnings Call
Operator: Transition Well, Greetings, and welcome to Haverty's 4th Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode.
Greetings and welcome to hover each fourth quarter 2023 earnings call. At this time, all participants are in listen only mode.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Hare, Chief Financial Officer. Please do so.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your cellphone keep at Howes.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Richard Hare, Chief Financial Officer. Please go ahead, Sir thank.
Richard Hare: Thank you, operator. During this conference call, we'll make forward-looking statements that are subject to risk and uncertainty. Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made and which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the SEC. Our Chairman and CEO, Clarence Smith, will now give you an update on our results, and our President, Steve Burdette, will provide additional commentary about our business. Good morning.
Thank you operator during this conference call, we'll make forward looking statements, which are subject to risks and uncertainties.
Actual results may differ materially from those made or implied in such statements, which speak only as the date. They are made and which we undertake no obligation to publicly update or revise factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the SEC.
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Our chairman and CEO Clarence Smith will now give you an update on our results and our presence deeper that will provide additional commentary about our business.
Good morning.
Clarence Smith: Thank you for joining our 2023 fourth quarter and full year conference. Fourth quarter sales were $210.7 million, down $24.9. Total written sales were down 13.1%, and written comp store sales declined 14.3%. Total sales for the year were $862 million, down 17.7% from 2022. Our current sales performance returns to the pre-COVID sales trends we experienced in 2019 and 2018. In the fourth quarter, our teams did a solid job of expense control, higher gross margins, and excellent inventory management. Improvement in average ticket designer sales and maintaining high quality service helped produce a pre-tax margin of 8.7% and $18.5 million. For the full year, we produced $72.7 million pre-tax.
Thank you for joining our 2023 fourth quarter and full year conference call.
Our fourth quarter sales were $210.7 million down 24.9%.
Total written sales were down 13, 1% and written comp store sales declined 14, 3% for the quarter.
Total sales for the year were 860 to 132 million down 17, 7% from 'twenty to 'twenty two.
Our current sales performance return to the pre Covid sales trends, we experienced in 2019 and 2018.
In the fourth quarter, our teams did a solid job in expense control higher gross margins and excellent inventory management.
Improvement in average ticket hotter designer sales and maintaining a high quality service helped produce pretax margins.
Eight, 7% and $18 $5 million.
For the full year, we produced $72 $7 million pretax.
Clarence Smith: Earnings versus $119.5 million in 2020. Following record sales and profit years post COVID, the furniture industry was first hit by consumer spending on travel and entertainment and, most recently, higher mortgage and interest rates, which significantly impacted housing. For Haverty's, home sales in the South have historically been highly correlated to our furniture.
Earnings versus $119 5 million in 2022.
Following record sales and profit years post COVID-19 the furniture industry was first hit by consumer spending on travel and entertainment and by most recently, the higher mortgage and interest rates, which significantly impacted housing sales.
For hybrid is home sales in the south of historically been highly correlated to our furniture sales.
Clarence Smith: Currently, home sales have been at historic lows and have clearly impacted our customers' interest in buying furniture. These trends are reflected in our recent performance. We're encouraged that we believe that home sales seem to have bottomed out. It is evident now that we've experienced a two-year pull-forward of furniture and accessory sales due to COVID, and I haven't experienced a two-year fall off in sales. Our teams have done a fine job of reducing our costs and reacting to the weakening sales trends and adjusting across all areas of our business. Our headcount compared to 2019 pre-COVID is down from approximately 3,500. 2,500 team members are making similar sales.
Currently home sales have been at historic lows and have clearly impacted our customers' interest and buying furniture.
These trends are reflected in our recent performances. We're encouraged that we believe that home sales seem to have bottomed out after dramatic declines.
It is evident now that we've experienced a two year pull forward of furniture and accessories sales due to COVID-19 and to have an experienced a two two year a falloff in sales.
Our teams have done a fine job in reducing our costs in reaction to the weakening sales trends and adjusting across that whole areas of our business.
Our head count compared to 2019 pre Covid is down from approximately 3500 to 2500 team members, making similar sales volume.
Clarence Smith: We're continuing to evaluate all areas of our business for opportunities to consolidate and add productivity. We focused on serving our customers better with improved in-store and online technology, strengthening our design service, adding customization and special order products, and upgrading our product. All these areas will continue to separate us from the more promotional players in our industry. The acquisition of four former Bed Bath & Beyond locations is on track for converting to Haverty stores in the first half of 2024.
We're continuing to evaluate all areas of our business for opportunities to consolidate in that productivity.
We focused on serving our customers better with improved in store and online technology.
Strengthening of our design service, adding customization and special order products and upgrading our product lines.
All of these areas will continue to separate us from the more promotional players in our markets.
The acquisition of four former bed Bath and beyond locations are on track for converting to have any stores in the first half of 'twenty 'twenty four.
Clarence Smith: All these stores are in adjacent markets to current Haverty stores, and we're leveraging existing manufacturing. We're currently training staff in nearby stores to prepare for the spring and early summer openings. We're very pleased with the three important Florida stores and one store outside Memphis in South Haven, Mississippi.
All of these stores are in adjacent markets to current fabric stores and we're leveraging existing management.
We're currently training staff in nearby stores to prepare for the spring early summer openings.
We're very pleased with the three important Florida stores and one store outside of Memphis in South Haven, Mississippi.
Clarence Smith: We're in due diligence on several additional opportunities, including other former Bed, Bath & Beyond locations in our regions and expect to meet our goal of five new stores per year in 2024 and 2025. Our plans are to add stores in adjacent and existing markets within our distribution footprint, which could expand to several states from our soon-to-be 17th.
We're in due diligence on several additional opportunities, including other former bed Bath <unk> beyond locations on our regions and expect to meet our goal of five new stores per year, and 'twenty 'twenty, four and 'twenty to 'twenty five.
Our plans are to add stores in adjacent and existing markets within our dystrophy distribution footprint.
This could expand the several states from our soon to be 17th state.
Clarence Smith: We have several sites and locations we're evaluating and expect to see additional store opportunities soon from retailers struggling with sliding sales and refinancing. Haverty's financial strength, funded debt, and over $100 million in cash, allows us to continue to invest in new stores and upgrade stores and systems to better serve our customers. We continue to focus on helping our customers' vision of their home come to life.
We have several sites and locations, we're evaluating and expect to see additional store opportunity soon.
Some retailers struggling with slotting sales and refinancing debt.
However, this financial strength was zero funded debt and over $100 million in cash.
How's us to continue to invest in new stores, and upgrading stores and systems to better serve our customers.
We continue to focus on helping our customers' vision of their home come to life.
Clarence Smith: We have a long history of gaining market share and building on our strengths in difficult times. We believe that we are especially well-positioned to grow our business in many of the fastest growing markets in the country in the near term and into the future. Thank you, Clarence, and good morning.
We have a long history of gaining market share and building on our strengths in difficult times.
We believe that we are especially well positioned to grow our business in many of the fastest growing markets in the country in the near term and into the future.
Thank you Clarence and good morning.
Steve Burdette: Our fourth quarter and 2023 yearly results were certainly below our expectations, but we are proud of all our team members for providing what turned out to be our third best year for the company and sales and operating processes. Store traffic continues to be a struggle in all markets as we battle the headwinds of high interest rates along with the worst housing market in 30 years.
Fourth quarter and 2023 yearly results were certainly below our expectations, but we are proud of all our team members for providing what turned out to be our third best year for the company in sales and operating profits.
Store traffic continues to be a struggle in all markets as we battle the headwinds of high interest rates along with the worst housing market in 30 years.
Steve Burdette: However, we continue to see our design business and product assortment driving our overall average ticket as it increased by low single digits for the quarter and year. Also, our closing rates remain strong, but we're down low single digits for Q4 of the year. Our supply chain network has not felt any impact yet that would affect our business from the geopolitical issues in the Middle East.
However, we continue to see our design business and product assortment driving our overall average ticket as it increased low single digits for the quarter and year.
So our closing rates remain strong but were down low single digits for Q4 and the year.
Our supply chain network is not felt any impact yet that would affect our business from the geopolitical issues in the middle East.
Steve Burdette: We have seen some extended lead times due to the shipping lanes being adjusted due to the inability to use the Suez Canal, but the impact on our customers and inventories is, Our inventories are in excellent condition, and we're down at year-end by approximately 20% with backlogs remaining consistent. Our special order business continues to remain strong, with an increase of over 31% in Q4 and over 40% for the year. Our design business continues to be a big driver of our business as it continues to grow to over 31% of our total business in the quarter and approximately 29% of our business for the year. Designer average ticket continues to grow at high single digits, and we are encouraged that we've been able to grow the number of customers that are engaging with our designers by 15% in Q4 and by 8% for the year. There is still tremendous opportunity for us in our design business as we see the opportunity to grow double digits by increasing the percentage of engaged customers and their average salary. We have enhanced our marketing campaign, We Furnish Happiness, to include a regret-free experience.
We have seen some extended lead times due to the shipping lanes being adjusted due to the inability to use the Suez canal, but the impact on our customers and inventories is minimal.
Our inventories are in excellent condition, and we're down at year end by approximately 20% with backlogs remaining consistent.
Our special order business continues to remain strong with an increase of over 31% in Q4 and over 40% for the year.
Our design business continues to be a big driver of our business as it continued to grow to over 31% of our total business in the quarter and approximately 29% of our business for the year.
Designer average ticket continues to grow at high single digits, and we are encouraged that we've been able to grow the number of customers that are engaging with our designers by 15% in Q4 and by 8% for the year.
There is still tremendous opportunity for us in our design business as we see the opportunities to grow double digits by increasing the percentage of engaged customers and their average ticket.
We have enhanced our marketing campaign, we furnish happiness to include with our regret free experience.
Richard Hare: This messaging circles around four pillars that we feel are key to our customers' happiness and experience: Choices, Quality Design, and Service. We have built our company's success over the last 138 years by instilling a culture of not selling a customer one time but selling a customer for a lifetime. We believe in our products, our team members, our systems, and our execution. At the same time, we are continuing to reduce our staffing to match our current business conditions through attrition in all areas of the business. Thank you. Thank you, Steve.
Messaging circles around four pillars that we feel are key to our customers' happiness and experience.
Joyce's quality design.
In service we.
We have built our company success over the last 138 years by instilling a culture of not selling and customer one time, so when a customer for a lifetime.
We believe in our products our team members our systems and our execution.
At the same time, we are continuing to right size, our staffing to match our current business conditions through attrition in all areas of the business.
Extend financing continues to play an important part in our holiday events each quarter as we manage these costs. However, we are experimenting with a different.
Richard Hare: In the fourth quarter of 2023, we reported net sales of $210.7 million, a 24.9% decrease over the prior quarter. Comparable store sales were down 25.5% over the prior year period. Our gross profit margin increased 540 basis points to 62.4% from 57% due to reductions in freight, positive LIPO inventory adjustment, and pricing discipline. SG&A expenses decreased $13.8 million, or 10.7%, to $114.7 million.
Richard.
Thank you Steve in the fourth quarter of 2023 reported net sales of $210 7, million% to 24.9% decrease over the prior year quarter comparable store sales were down 25, 5% over the prior year period.
Our gross profit margin increased 540 basis points to 62, 4% from 57% due to reductions in freight a positive LIFO inventory adjustment and pricing discipline.
SG&A expenses decreased $13 8 million or 10, 7% to $114 7 million as a percentage of sales. These costs approximated 54, 4% of sales up from $45 eight in the prior year quarter.
Richard Hare: As a percentage of sales, these costs approximated 54.4% of sales, up from 45.8% in the prior year quarter. We experienced decreased selling costs, advertising, distribution, and transportation expenses in these quarters. Other income expense in the fourth quarter of 2024 was negligible, and interest income was approximately 1.8 million during the fourth quarter as we earn more on our cash deposits due to higher interest rates. Income before income taxes decreased $14 million to $18.5 million. Our tax expense was $3.5 million during the fourth quarter of 2023, which resulted in an annual effective tax rate of 22.5%. The primary difference between the effective rate and the statutory rate is due to state income taxes and the additional tax benefit from the impact of the vesting of stock awards during the year.
We experienced decreased selling costs advertising distribution and transportation expenses during the quarter.
Other income expense in the fourth quarter of 2024 was negligible and interest income was approximately 1.8 million during the fourth quarter as we earn more on our cash deposits due to higher interest rates.
Income before income taxes decreased $14 million to $18 5 million.
Our tax expense was $3 5 million during the fourth quarter of 2023, which resulted in an annual effective tax rate of 22, 5%.
The primary difference in the effective rate and the statutory rate is due to state income taxes and the additional tax benefit from the impact of the vesting of stock awards during the year.
Richard Hare: Net income for the fourth quarter of 2023 was $15 million, or 90 cents per diluted share on a common stock compared to net income of $23.7 million, or $1.42 per share, in the comparable quarter last year. Now turning to our balance sheet, at the end of the fourth quarter, our inventories were $93.9 million, which was down $24.4 million from December 31st, 2022 and down $8.4 million versus Q3 2023. At the end of the fourth quarter, our customer deposits were $35.8 million, which was down $12.1 million from December 31st, 2022, and down $10.5 million versus the Q3 2023 balance. We ended the quarter with $120.6 million of cash and cash equivalents, and we had no funded debt on our balance sheet at the end of the year. Looking at some of our uses of cash flow, capital expenditures were $53.1 million for the calendar year of 2023.
Net income for the fourth quarter of 2023 was $15 million or 90 cents per diluted share on our common stock compared to net income of $23 7 million or $1 42 per share in the comparable quarter last year.
Now turning to our balance sheet at the end of the fourth quarter. Our inventories were $93 9 million, which was down $24 4 million from December 31, 2022, and down $8.4 million versus Q3 2023.
At the end of the fourth quarter, our customer deposits were $35 8 million, which was down $12.1 million from December 31, 2022, and down 10.5 billion versus the Q3 2023 balance.
We ended the quarter with $126 million of cash and cash equivalents and we have no funded debt on our balance sheet at the end of the year.
Looking at some of our uses of cash flow capital expenditures were $53 $1 million for the calendar year of 2023 as a reminder, we repurchased our Florida distribution facility in the second quarter for $28 $2 million. In addition, during 2023, we paid $19 $1 million in quarterly dividends and <unk>.
Richard Hare: As a reminder, we repurchased our Florida Distribution Facility in the second quarter for $28.2 million. In addition, during 2023, we paid $19.1 million in quarterly dividends and $16.1 million in special dividends. During the fourth quarter, we purchased 122,850 shares of common stock under our existing stock buyback program for $3.7 million.
$16 $1 million and special dividends.
During the fourth quarter, we purchased 122850 shares of common stock under our existing stock buyback program for $3.7 million.
Richard Hare: We have approximately $13.1 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements, including our future expectations for certain financial metrics. I'll highlight a few, but please refer to our press release for additional commentary. We expect our gross margins for 2024 to be between 59.5% and 60%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIFO reserves. Our Fixed and Discretionary Type SG&E Expenses for 2024 are expected to be in the $295-297 million range. The variable type costs within SG&A for 2024 are expected to be in the range of 19.9% to 20.2%, with the increases over 2023 primarily being inflation.
We have approximately $13 $1 million of existing authorization.
Optimization and our buyback program.
Our earnings release list out several additional forward looking statements, including our future expectations on certain financial metrics metrics out.
I had a few but please refer to our press release for additional commentary.
We expect our gross margins for 2024 to be between 59, and a half and 60% we.
We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIFO reserve.
Our fixed and discretionary type of SG&A expenses for 2024 are expected to be in the $295 million to $297 million range.
The variable type costs within SG&A for 2024 are expected to be in the range of.
19.9% to 22%.
With the increases over 2023, primarily being inflation driven.
Richard Hare: Our planned CapEx for 2024 is $32 million. Anticipated new or replacement stores, remodels, and expansions account for $27 million. Investments in our distribution network are expected to be $2.5 million, and investments in our information technology are expected to be approximately $2.5 million. This projection excludes the impact of vesting of stock awards and any potential new tax legislation.
Our planned Capex for 'twenty 'twenty, four is $32 million and.
Anticipated, new or replacement stores, Remodels and expansions account for $27 million.
Vestments and our distribution network are expected to be two and a half million dollars and investments in our information technology.
We're expected to be approximately $2 $5 million.
Our intest anticipated effective tax rate for 'twenty 'twenty four is expected to be 26, 5%.
This projection excludes the impact from vesting of stock awards, and any potential new tax legislations.
Operator: This completes my commentary on the fourth quarter financial results. Operator, we would like to open up the call for questions at this time. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question key. You may press star 2 if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.
This completes my commentary on the fourth quarter financial results operator, we would like to open up the call for questions at this time.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up to pick up your handset before pressing the star keys.
Anthony C. Lebiedzinski: And our first question comes from the line of Anthony Lebiedzinski with Sidoti. Good morning, gentlemen, and thank you for taking the questions. So, first, can you please talk about the cadence of your written sales as the quarter progressed and just wondering if you saw any notable changes in terms of different geographies or different regions? Here, Anthony, there were no significant changes in geography or regions, but in October, our orders, or our written business, was down almost 21%. Then in November, it was down slightly over 9%. And then in December, it was down around 11% to 12%. So for the quarter, around 13.1%. Deliveries were pretty consistent.
And our first question comes from the line of Anthony <unk> with Sidoti. Please proceed.
Good morning, gentlemen, and thank you for taking the questions.
Good morning, So first can.
Can you talk a please about the cadence of your written sales as the quarter progressed and just just wondering if you saw any notable.
Changes in terms of different geographies or different regions.
Sure Anthony No no significant changes in geography of regions, but in October our orders of our written business was down almost 21% then in November it was down slightly over 9%.
And then in December it was down around.
Around 11% to 12% so for the quarter around 13.1% deliveries were pretty consistent.
They were down in the in the mid Twenty's basically each month.
Richard Hare: They were down in the mid-20s, basically, each month of the quarter. Understandable. Yeah, thanks for that color, Richard.
Each month of the quarter.
Understood. Thanks for that color Richard that so.
Just wondering as far as the big change between October and the rest of the quarter.
Richard Hare: So just wondering, as far as the big change between October and the rest of the quarter, was this just more people buying stuff around the holidays, or anything you can share as far as what drove the 21% decrease in October than you were, I guess, less bad in the rest of the quarter? I don't think that. I think it really kind of came back to normal, is what I would say. 21% was a pretty strong decline; I think it just leveled off. And also, we're seeing the business, Anthony, around the holiday events, certainly after Thanksgiving and Veterans Day, certainly were more, you know, driving the factor and driving the number and then heading into the holidays of December. And some of the comparables from each month could have been, you know, were different from year over year.
Was this just just.
Just more and more people buying stuff around the holidays are like.
He can share as far as what that drove the.
21%. The decrease in October then than you are I guess less bad than the rest of the quarter.
I don't think I think it really kind of came back to normal is what I would say.
1% was a pretty strong decline I think it just leveled off frankly is.
There's what I would suggest and also we're seeing the business Anthony around the holiday events, certainly after Thanksgiving Veteran's day.
We want more.
Driving the factor in driving the numbers and then heading into the holidays in December and some of the comparable from each month could have been.
From year over year.
Richard Hare: Understood. Okay. And one of your peers said yesterday during its conference call that they were hurt by severe weather in January, though they said their President's Day sales were somewhat better. Can you share with us anything like directionally as far as how the current year has started for you? Yeah, we don't like to give input on the current quarter, but I will say clearly that the weather was a factor. I mean, it hit us just like it hit anybody that was trying to operate. We had bad weather, particularly in the Mid-South area, but it did affect us.
Understood. Okay, and then you know one of your peers said yesterday during its conference call that they were hurt by severe weather in January though they said their presidents' day sales were somewhat better.
Can you share with us anything like Directionally as far as how.
The current year has started for you.
Yes, we don't like to give input on the current quarter, but I will say clearly the weather was a factor I mean it hit us.
Like it hit any of the anybody that was trying to operate we had we had bad weather, particularly in the in the mid south area, but.
It did affect us, we're not giving any numbers out yet on this quarter.
Richard Hare: We're not giving any numbers out yet on this. Okay. All right. But I was just wondering if you also saw that impact as well.
Understood. Okay, alright, but just wondering if you also saw that impact as well got you. Okay and then Steve you talked about right sizing of staffing.
Steve Burdette: Gotcha. Okay. And then, Steve, you talked about right sizing of staffing. Can you share with us as far as like what your employee count was at the end of the year, or like where it is now, and how does that compare to the prior year? Obviously, four years ago when you had the COVID pandemic initially hit, you guys did a big cut to your employee base, then you rehired some people. So can you just share us like some perspective as to how you're structurally different than where you are now versus pre-pandemic levels as far as the employee count? Yeah.
Can you share with us as far as like what's your employee count was weather at the end of the year or like where it is now and how does that compare to the prior year are obviously you know about four years ago. When you had the Covid pandemic. Initially had you guys did a big cut to your employee base that you re hired some people. So can you just share with like some.
So perspective as to how your.
Structurally different than where you are now versus pre pandemic levels as far as the employee count Yes, we're down if you go back to pre pandemic, Anthony we're down about 1000 associates.
Steve Burdette: We're down, if you go back to pre-pandemic Anthony, we're down about 1,000 associates. And then from last year, we're down about 250. And we're continuing to make sure we right size it to the business of where we are. Gotcha. Okay. And then lastly, for me, before I pass it on to others.
And then from last year were down about 250 is the number.
We're continuing to make sure we right size it to the to the business.
We are.
Got you, Okay, and then lastly for me before I pass it on to other so Steve you also mentioned that you were experimenting I guess with some new alternative financing programs can you expand on that give us some some additional color yes.
Steve Burdette: So, Steve, you also mentioned that you're experimenting with some new alternative financing programs. Can you expand on that? Give us some additional color.
Steve Burdette: Yeah. We made a decision, and we started using 48 months, more than 60 months. And we've also adjusted some of our minimum purchases and down payment percentages to what we're doing there. So, we've got to manage that cost. And so far, we did that some in the fourth quarter. We have not seen an impact on the business by making that move, and it's more cost effective for Haverty. Understandable. Well, thank you very much and best of luck. Thanks Anthony. Our next question comes from the line of Michael Legg with The Benchmark Company. Thanks, Good morning.
Yes, we are.
We made a decision and we started utilizing 48 months more than 60 months.
And we also adjusted some of our minimum purchases in downpayment percentages to it.
What we're doing there so we've got to manage that cost.
And so far and we did that some in the fourth quarter, we have not seen an impact to the business by making that move and it's more cost effective for Harris.
Understood well, thank you very much and best of luck.
Thanks Anthony.
Our next question comes from the line of Michael Legg with the Benchmark Company. Please proceed.
Thanks, Good morning.
Michael Legg: Wanted to follow up a little bit on the financing question. What percent of your sales were financed, and then of those that tried to finance? What did you see from the approval rate versus store trend? We haven't really seen much of a change, this is Steve, and all the approval rates are where they are. And our businesses continue to remain around a third of our business is on credit. So we haven't seen a change. Okay, and then promotion in the industry.
I wanted to follow up a little bit on the financing question.
What percent of your sales will finance and then of the.
Consumers who.
Try to finance, what what did you see from the approval rate versus historic trends.
We haven't really seen Michael or changes to stay even in any of the approval rights.
Is where it is and our business has continued to remain around a third of our business is on credit so.
So we haven't seen a change there.
Okay.
And then.
Promotion in the industry can you talk to what you're seeing from competitors in your area.
Steve Burdette: Can you talk about what you're seeing from competitors in your area? Yeah, I think you'll see that there are some that are getting more aggressive and chasing the price and offering those values, but we're focused on the value that we're offering our customers with a quality product. So we're not chasing the price, Michael, on what happens, and we don't want to panic and move that way. We work too hard to get our margins where they are. Richard gave us the guidance out there, 59.5 to 60. We still feel very comfortable with that.
Yes, I think youre seeing certainly there are some that are getting more aggressive in chasing the price.
And offerings those values, but we're focused on our value that we're offering our customer the quality product. So we're not chasing the price Michael on what.
But that happens and we.
We don't want to panic and move that way, we work too hard to get our margins where they are.
Richard gave the guidance out there of $59 five to 60, we still feel very comfortable with that that will allow us.
Steve Burdette: That will allow us to be able to make sure that we have the same cadence of promotions out there for the consumer and then have the same values out for our customers. We've definitely seen it on the lower end more aggressive with it, but I'd say the use of it has been about the same as far as the advertising of it is concerned. Their visibility is about the same.
To be able to make sure that we have the same cadence of promotions out there for the consumer.
And then have the same values out for our customers, but we've definitely seen it on the lower end more aggressive with it but I would say the the use of it has been about the same as far as the advertisement of it there their visibility is about site, there's really no change there.
Steve Burdette: There's been no change. Okay, and then we have the store growth with the Bed Bath & Beyond leases that you took over. Previously, we had mentioned that you had been looking at some out of the auction on your own.
Okay, and then we have the store growth that we have with the bed Bath and beyond leases that you took over please.
Previously we had mentioned that you had been looking at some.
Out of the auction on your own whats your viewpoint now are still going after new scores that you don't have already.
Steve Burdette: What's your viewpoint now of still going after new stores that you don't have already? Well, we're certainly planning on growing five stores. I mean, we've got those four that are lined up right now.
Well, we've certainly we would plan on growing five stores I mean, we've got those four there are lined up right now we're going to we've got one store that will close at the end of the first quarter that's been announced.
Steve Burdette: We're gonna We've got one store that will close at the end of the first quarter that's been announced, and we feel comfortable we'll get to five stores this year and five stores next year. There are opportunities out there.
And we feel comfortable that we'll get to five stores this year and five stores next year.
There's opportunities out there we've got a lot going but we can't discuss it right now Michael because we don't have anything firm. So we're still in that negotiation process.
Steve Burdette: We've got a lot going, but we can't discuss it right now, Michael, because we don't have anything firm yet. So we're still in that negotiation process. Okay, great. Thanks.
Steve Burdette: And one more question just on the design initiative. I know we have roughly one designer per store. There's been talk, I believe, about possibly increasing that, you know, despite the headcount reduction that's in plan. What's going on with the designer staff?
Okay, great. Thanks, So one more question just on the design initiative now we have roughly one designer per store there had been talk I believe about possibly increasing that.
The head count reduction I have some plan, what's going on on the designers.
Steve Burdette: Yeah, we increased it. We've got about 15 or so stores that have two designers, and we're right now going to, you know, hold tight on that, where it is right now, and how we look forward to it. Those are in our bread stores where we needed the two designers, and, you know, we're just going to monitor it with the business, you know, what we're doing, Michael.
Yeah, we increased it we've got about 15 or so stores that have two designers and we're right now going to hold tight on that where it is right now.
And how we look forward, whether those are in our better stores, where we needed the two designers and.
We're just kind of monitor it with the business you know what.
We're doing Michael make sure we stay focused on that control the cost with the decrease in traffic that one designers can deal with and handle what we got going so we don't feel the need as much depress it across the board, but that's still going to be a direction. As we go forward when we start adding back sales consultants and or designers will make a choice there.
Steve Burdette: Make sure we stay focused on that and control the cost. With the decrease in traffic, the one designers can deal with and handle, you know, what we got going, so we don't feel the need as much to press it across the board, but that's still going to be a direction as we go forward. When we start adding back sales consultants and or designers, we'll make a choice there, and we'll probably lean more toward designers and sales, just as sales have pulled back after COVID. Are any of the sales commissions and the sales people still making the money they need to be happily employed, or are there other compensations? Is it down? How does that look?
And we'll probably lean more toward designers and sales consultants.
And then just.
As sales have pullback after COVID-19.
Are any of the sales commissions and the salespeople are they still making the money they need to be happily employed are their compensation is down how does that look.
Steve Burdette: Well, I can tell you for 2023, they were down about 10% in compensation. But overall, we've adjusted those numbers down relative to the traffic. Michael, so we've tried to maintain that so our average salesperson still made 23 over, you know, over $85,000. And that was well up from where we were pre-pandemic when we were in the mid-50s. And so, you know, we still feel comfortable with that. Now, there's a certain minimum that we can go to, Michael.
Well I can tell you for 2023 I mean, they were down about 10% compensation.
But overall, we've adjusted those numbers down relative to the traffic Michael.
Michael So we've tried to maintain that so they still you know our average salesperson is still made in 'twenty three over over $85000 and that was well up from where we were pre pandemic, while we're in the mid fifties.
Okay great.
We still feel comfortable that there is a certain minimum that we can go to Michael we've got to have a certain amount of sales consultants to serve the business. So we won't go below that level, but we are certainly adjusting based on the traffic to insure that we have a better experience for the customer we think we get increased close rates customer serving them better.
Steve Burdette: We've got to have a certain number of sales consultants to serve the business, so we won't go below that level, but we are certainly adjusting based on the traffic to ensure that we have a better experience for the customer. We think we get higher close rates because we serve them better. And so it just feels like that works better, and it's better for our sales consultants as a whole. And then just one more, Outdoor. Is that still slated to start launching in select stores? It's just started. We're bringing it in now. I saw some of it in the stores a couple of weeks ago.
And so that's just filling that works better and it's better for our sales consultants as a whole.
Great and then just one more outdoor or is that still slated to start watching in select stores.
It has just started we're bringing it in now I saw some of it in the stores a couple of weeks ago. It's just begun we don't have it all out there yet.
Steve Burdette: It's just begun. We don't have it all out there yet. So I don't have a track record.
I don't have a track record I think initially the response has been good.
Steve Burdette: I think the initial response has been good. Great. Thanks, guys. Our next question comes from the line of Cristina Fernandez with Kelsey Advisory Group. Hi, good morning.
Great. Thanks, guys.
Okay.
Our next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed.
Hi, good morning.
Cristina Fernndez: I wanted to start with a big picture question. Can you talk about what your view is of the housing market in 2024? That's informing your planning for the business. And do you think, based on your positioning, that you can outperform the overall market? Well, I think I'll comment on housing first.
Start with a big picture question can you talk about what your view is of the healthy market in 2024, that's informing your planning for the business.
Do you think.
On your positioning that you can outperform the overall market.
Well I think I'll comment on the housing.
Steve Burdette: It definitely has affected our business. Now, houses are getting built, but there are just not enough of them, and the interest rates have certainly affected the ability of these people to afford them.
It definitely has affected our business now the houses are getting built.
It's just not enough of them and the interest rates are certainly affected the ability for these people to afford it so.
Steve Burdette: We're our biggest states are Florida, Texas, Georgia, where people are moving. When people move into Florida, they buy new furniture. So anything involving a new transaction helps our business. I don't see I can't see through all of that.
Our biggest states are Florida, Texas, Georgia, where people are moving when people move into Florida, They bought new furniture, so anything involving a new transaction helps our business.
I don't see I don't see through any of that I don't see any clarity beyond that other than.
Richard Hare: I don't see any clarity beyond that other than that when we have new houses, it helps our business, and I don't see any new insights into that. Do you have any comments? Okay, so then another question, I wanted to understand better the cost inflation that you're seeing in the various categories and the increase in SG&A. I know you don't guide to revenues, but when I do the math, let's assume, let's say, like flat revenues, it implies an operating margin that's down, based on my calculation, about 250 basis points at the midpoint, based on the ranges you gave. So maybe just kind of walk us through sort of the increases you're seeing and do you see this as temporary, or are there efforts to kind of try to get back to that high single-digit, double-digit operating margin? Sure, let me walk through the three guidance points that we put out in the press release.
When we have new houses it helps our business and I don't see any new insights into the do you have any comments on okay.
Okay Dan.
Another question wanted to.
And better the cost inflation, you're seeing on the various categories.
Increased.
SG&A.
You don't guide to read the news, but when I do the math, let's assume let's say like flat revenues. It implies an operating margin that's down.
Based on my calculation about 250 basis points at the midpoint based on the ranges you gave still.
Maybe just kind of walk us through sort of the increases you are seeing in D. C. It's temporary.
Or.
Their efforts to try to get back to that high single digit double digit operating margin.
Sure Let me, let me walk through the three guidance points that we put out in the press release. So first of all on the gross profit margins.
Richard Hare: So, first of all, on the gross profit margin... We're projecting out a decline. But I want to point out that in 2023, we had the impact of the LIFO benefit that was about 100 basis points. In the previous year, in 2022, it was about 100 basis points going the other way. So in 2024, we're really not anticipating any significant LIFO movement. So we're kind of going in without the benefit of a $9 million benefit going into 2024 that we had in 2023. Yet we're still going to have strong margins of 59.5 to 60.
We're projecting out or decline I want to point out that in 2023.
We had the.
The impact of LIFO benefit there was about a <unk> of about 100 basis points in the previous year in 2022. It was about 100 basis points going the other direction. So in 2024, we're really not dissipating any significant LIFO movement. So we're kind of going in without the benefit of of nine.
Dollar benefit going into 2024 that we had in 2023, yet we're still going to it's still going to have strong margins of 59, 5% to 60 on the variable G&A, we pointed out earlier, some a little bit about the financing costs. We're doing some things in that regard, we're where we're.
Richard Hare: On the variable G&A, we pointed out earlier a little bit about the financing costs. We're doing some things in that regard where we're going more towards the 48 versus the 60 month. It's less expensive, and we're not seeing any kind of drop off in sales.
Going more towards the 48 versus the 60 month, its less expensive and we're not seeing any kind of a drop off in sales and if you look at where we were in the fourth quarter.
Richard Hare: And if you look at where we were in the fourth quarter of the one that we're reporting now, we were right around 20%. So we're just, at these volume levels, you have less cost absorption. So based on where we were in the fourth quarter, I felt comfortable in guiding 19.9 to 20.2.
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The one that we're reporting now you know we were right around 20%. So we're just at these volume levels you have less cost absorption. So based on kind of where we were in the fourth quarter I felt comfortable in guiding 19, 9% to 20 point to kind of kind of where we were in the fourth quarter is kind of right in the middle of that guidance and then on the.
Richard Hare: Kind of where we were in the fourth quarter is kind of right in the middle of that guidance. And then on the non-variable SG&A, there's about a $10 million spread between the results in 2023 versus the guidance in 2024. About half of that is occupancy costs, so you got a couple million dollars of the new stores that we're opening that we'll have in 2024 that we didn't have in 2023. And then you've got about $2 or $3 million in 2023. We had about a $3 million credit through a lease modification that we don't have reoccurring in 2024. So you've got about, in all, about $5 million worth of increased occupancy expense between those two things. And if you just use about a 2% inflation rate on $285 million, that'll get you the rest of the spread. So it's just basically occupancy costs, and in general, 2% cost inflation kind of gets you the rest of the non-variable G&A. Okay, that's very helpful.
Non variable SG&A, there's about a $10 million spread between the results in 2023 versus the guidance in 2024.
About half of that is occupancy costs. So you got a couple of million dollars of the new stores that we're opening that will have in 2024 that we didnt have in 2023, and then you've got about two or $3 million in 2023, we had about a 3 million dollar credit.
Through a lease modification that we don't have reoccurring in 2024, so you've got about an all about $5 million worth of increased occupancy occupancy expense between those two things and maybe just use about 2% inflation rate on $285 million that will get you. The the rest of the spreads. So it was just basic.
Glee occupancy cost in general, 2% cost inflation kind of gets you. The the rest of the the non variable G&A increase.
Speaker Change: Okay. That's very helpful. And then the last question I had.
Cristina Fernndez: And then the last question I had, on store openings, I guess, how should we think about the contribution of your new stores? You're opening more stores this year. If your average store did about $7 million in sales in 2023, how is the ramp-up of a new store normally to get to that level? Usually, what's year one? How does it ramp up to maturity?
Speaker Change: On the store openings.
Speaker Change: I guess, how should we think about that contribution of EMEA stores you are opening more stores this year.
Speaker Change: Average store did about $7 million in sales in 2023, Oh, it's normally the ramp up to open new stores to get to that level.
Speaker Change: Usually what tier one how does it ramp up to maturity.
Richard Hare: Yeah, a great question. So, yeah, if you look at the average number of stores we have in our revenue, you're going to get $6 to $7 million per location. And it usually takes us about a year to break even. By the end of year one, we're usually breaking even, and then by the end of year three, we're fully ramped up, throttled, so full to go. So I don't know, Steve, if you have any more operational color there, but just from a financial standpoint, that's kind of the way we model things.
Speaker Change: Yeah, Great question. So yeah. If you if you look at the.
Speaker Change: Average.
Speaker Change: For stores, we have in our revenue you're going to get $6 million to $7 million per location.
Speaker Change: And it usually takes us about a year to break.
Speaker Change: Within the end of year, one which.
Speaker Change: Usually breaking even and then by the end of year three we're fully ramped up throttled. So full that goes on all Steve you have any more operational color there, but just from a financial standpoint, that's kind of the way we model things.
Speaker Change: Okay.
Richard Hare: Great. Thank you for the caller. Best of luck this quarter. Thank you. Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to management for closing. Thank you for your participation in today's call, and we look forward to talking with you in the future when we release our first quarter results later this year. Thank you. This concludes today's conference; you may now disconnect your lines and enjoy the rest. Custom Ukulele Solo Donut
Speaker Change: Okay, great. Thank you for the color best of luck this quarter.
Speaker Change: Thank you.
Thank you.
Speaker Change: Ladies and gentlemen, there are no further questions at this time I'd like to turn the call back to management for closing remarks.
Speaker Change: Thank you for your participation in today's call and we look forward to talking to you with you in the future when we release our first quarter results. Later this year. Thank you.
Speaker Change: This concludes today's conference you may now disconnect your lines and enjoy the rest of your day.
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